[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1879 Introduced in Senate (IS)]
106th CONGRESS
1st Session
S. 1879
To promote international monetary stability and to share seigniorage
with officially dollarized countries.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
November 8, 1999
Mr. Mack introduced the following bill; which was read twice and
referred to the Committee on Banking, Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To promote international monetary stability and to share seigniorage
with officially dollarized countries.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``International Monetary Stability Act
of 1999''.
SEC. 2. FINDINGS; STATEMENT OF POLICY.
(a) Findings.--Congress finds that--
(1) monetary stability is a prerequisite for strong long-
term economic growth and increasing standards of living;
(2) many emerging market countries lack monetary stability
and have therefore suffered economic and financial problems
that suppress economic growth and living standards, including
financial fragility, inflation expectations that are built into
labor markets, and high and volatile inflation rates and
interest rates;
(3) many emerging market countries have used pegged
exchange rate systems to try to foster monetary stability and
have experienced temporary periods of higher economic growth
and lower inflation followed by drastic balance of payments
problems, steep devaluations, and major losses in international
reserves;
(4) emerging market countries that have adopted currency
board systems have enjoyed higher rates of economic growth and
lower interest rates, although interest rates have remained
higher for loans denominated in the local currency than in the
anchor currency;
(5) since the financial and economic crisis that struck
Asia in 1997, there has been growing international interest in
official dollarization, whereby a country would substantially
or totally eliminate its domestic currency and adopt the United
States dollar as legal tender;
(6) official dollarization would let a country import
monetary stability, thereby bringing inflation and interest
rates down toward the levels of the United States;
(7) official dollarization would make it impossible for
governments to print domestic currency to pay for government
programs, thereby promoting fiscal discipline;
(8) official dollarization would make it easier for people
to conduct financial transactions in the currency they use for
daily commerce, thereby promoting deeper financial markets;
(9) lower inflation, interest rates, and inflation and
interest-rate volatility, greater fiscal discipline, and deeper
financial markets would increase long-term economic growth and
raise living standards in emerging market countries;
(10) by increasing trade and investment flows and
decreasing the need for foreign assistance, greater economic
growth and higher living standards abroad would serve the
interests of the United States;
(11) countries that become officially dollarized would lose
seigniorage (the profit from issuing a currency) and this is a
significant barrier to official dollarization;
(12) official dollarization would increase the seigniorage
earnings of the United States;
(13) it would be mutually beneficial for the United States
to encourage official dollarization by offering to share with
countries that become officially dollarized a portion of the
extra seigniorage earnings that the United States would earn;
and
(14) encouraging official dollarization complements ongoing
efforts by the United States to strengthen the international
financial architecture.
(b) Statement of Policy.--It is the policy of the United States
that--
(1) the Federal Reserve System has no obligation to act as
a lender of last resort to the financial systems of dollarized
countries;
(2) the Federal Reserve System has no obligation to
consider the economic conditions of dollarized countries when
formulating or implementing monetary policy; and
(3) the supervision of financial institutions in dollarized
countries remains the responsibility of those countries.
SEC. 3. CERTIFICATION.
(a) In General.--The Secretary of the Treasury (in this Act
referred to as the ``Secretary'') may certify a country as officially
dollarized, after consideration of whether the country has--
(1) ceased issuing a local paper currency;
(2) destroyed the materials (such as plates and dies) used
to produce such currency;
(3) extinguished a substantial portion of the local
currency in circulation, with plans to extinguish as much of it
as feasible;
(4) ended the legal tender status of the local currency;
(5) granted legal tender status to the United States
dollar;
(6) ceased accepting local currency, except in exchange for
dollars;
(7) ceased making government payments in the local
currency;
(8) substantially redenominated its prices, assets, and
liabilities in dollars;
(9) either opened its banking system to foreign competition
or met international banking standards (such as those described
in the Core Principles for Effective Banking Supervision issued
by the Basle Committee on Banking Supervision of the Bank for
International Settlements); and
(10) engaged in advance consultations with the Secretary to
determine whether the country is a good candidate for official
dollarization.
(b) Statement by Secretary.--The Secretary shall issue a written
statement upon certification of a country under this section that
explains why that country has been certified. The Secretary may not
certify United States territories or commonwealths as officially
dollarized.
SEC. 4. CONSOL.
(a) Issuance.--
(1) Face value.--Upon certification of a country under
section 3, the Secretary shall issue to the dollarized country
a consol. Except as provided in section 5, the face value of
the consol shall be equal to the amount of dollars exchanged
for United States Treasury securities by the Federal Reserve
System with the dollarized country for purposes of official
dollarization under this Act.
(2) Limitation.--Face value may not exceed the dollar value
of the local currency in circulation in the dollarizing country
prior to the certification of that country as officially
dollarized under section 3.
(b) Interest Payments.--
(1) In general.--Starting with the first business day of
the fourth full calendar month following the date of
certification of a country under section 3, the owner of the
consol will receive interest payments every 3 calendar months
equal to (FV<INF>0</INF>)(i)(.25)[(C<INF>2</INF>-
FV<INF>2</INF>)/(C<INF>1</INF>-FV<INF>1</INF>)](85%).
(2) Definitions.--In this Act--
(A) FV<INF>0</INF> = face value of the consol
issued under this Act to the country receiving the
payment;
(B) FV<INF>1</INF> = face value of all consols
issued under this Act by the end of the most recent
full calendar year prior to the date of certification
under section 3 of the country receiving the payment;
(C) FV<INF>2</INF> = face value of all consols
issued under this Act by the end of the most recent
full calendar year prior to the payment;
(D) i = average yield to maturity on 90-day
Treasury bills in the most recent full 3-month calendar
period prior to the date of payment (using the average
of monthly interest rates, as calculated by the Board
of Governors of the Federal Reserve System);
(E) C<INF>2</INF> = total global dollar currency in
circulation at the end of the most recent full calendar
year prior to the payment (as provided by the Board of
Governors of the Federal Reserve System); and
(F) C<INF>1</INF> = total global dollar currency in
circulation at the end of the most recent full calendar
year prior to the date of certification of the country
receiving the payment (as provided by the Board of
Governors of the Federal Reserve System).
SEC. 5. PREVIOUSLY DOLLARIZED COUNTRIES.
(a) In General.--
(1) Limitation.--The Republic of the Marshall Islands, the
Federated States of Micronesia, the Republic of Palau, Panama,
the Turks and Caicos Islands and the British Virgin Islands may
not be certified as officially dollarized or issued consols
until 10 percent of the face value of consols issued to
countries other than those listed in this paragraph equals or
exceeds the total combined face value of consols that would be
issued to the countries listed in this paragraph upon their
being certified.
(2) Consol calculation.--
(A) In general.--Upon certification under section
3, each of the countries listed in paragraph (1) shall
receive a consol with a face value equal to (4%)(Y).
(B) Definition.--For purpose of subparagraph (A), Y
= nominal dollar gross domestic product, as calculated
by the World Bank (or other recognized statistical
authority), as of September 30, 1999, for calendar year
1997.
(3) Payments.--Interest payments on consols to countries
listed in paragraph (1) shall be made in accordance with
section 4.
SEC. 6. RIGHTS AND OBLIGATIONS.
Owners of consols issued under this Act shall have the same rights
and obligations as other owners of privately held obligations of the
United States Treasury, except that a consol originally issued to a
country is rendered null and void upon a United States declaration of
war on the country or a publicly issued statement by the Secretary that
the country is no longer officially dollarized in accordance with this
Act, but only if such written statement lists the reasons for such a
finding. In making a determination under this section, the Secretary
shall consider those factors listed in section 3(a).
SEC. 7. REPURCHASE.
The Secretary may repurchase a consol issued under this Act at
market value, but not sooner than 10 years after the date of issuance.
Purchases may only be made upon the joint agreement of the Secretary
and the owner of a consol. Consols issued under this Act are not
callable.
SEC. 8. EXCHANGE STABILIZATION FUND.
Payments on consols issued under this Act to countries that are in
default or arrears on loans from the Exchange Stabilization Fund shall
be used to cover such debts.
SEC. 9. REGULATIONS.
The Secretary and the Board of Governors of the Federal Reserve
System may issue regulations appropriate to carry out this Act.
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